Secured Business Credit Cards
When starting a small business it can be hard to secure business finance such as lines of credit. One possibility to is to apply for a secured business credit card.
Advantages of Secured Business Credit Cards
Banks like to lend out money that is secured against assets. A result of this is that a secured business credit card will have tend to attract a lower rate of interest compared to a standard credit card. As well as a lower interest rate, the card may also have a higher credit limit that would otherwise have been granted.
Like an individual, a business has its own credit rating and credit history. When taking out a secured credit card it is essential to keep to the agreed credit limits and to pay off at least the minimum balance on a monthly basis. Once the business has been in business for at least 6 months then it may be possible to move to an unsecured business card.
The good thing about opening a secured business card account is that it is one of the easiest ways for a small business to build up a credit history. This makes it much easier to apply for business expansion loans as the business requires future financing. A good credit history is also essential if outside investors are to be brought into invest in the company at some stage.
Disadvantages of Secured Business Credit Cards
The problem a lot of small businesses face is that they have few assets to begin with. Where possible it is advisable to secure business borrowings against business assets. That way if the business gets into trouble and faces bankruptcy the owners of the business don’t become personally liable for the business losses.
Where the business does not own any assets which a bank will use as collateral against borrowing, it is possible to get a line of credit established by using personal assets as collateral. Assets that may be used in order to apply for a secured credit card include:
- Residential property (i.e. your own home).
- Business property.
- Business assets such as plant and machinery.
- A share in the business.
- Stocks, bonds and other financial assets.
Remember that should you be unable to repay your business credit card and it is secured against your own home then you could potentially lose your home should your business be unable to repay the loan. Securing business borrowings against your own home is therefore very much a last resort when it comes to financing a business.
Choosing the Best Secured Business Credit Card
First of all securing borrowings against assets is more risky than taking out unsecured borrowings, so secured borrowing should be regarded as a last resort option. If your personal credit rating is good, then you may be eligible for an unsecured business credit card, so check with your proposed lender.
Banks normally offer newly established businesses 12-18 months of free banking, so it’s worth checking to see if a credit card would be included in this offer.
If the business requirements for additional financing is only short term, then it’s worth looking around for a credit card that has an attractive introductory interest rate offer. Many credit cards have up to 6 months of low interest charges, so this may give the business long enough to increase its income. 0% credit card offers used to be widespread, but since the 2008 financial crisis they have become a lot more elusive.
An alternative to a credit card with an initial attractive rate of interest is to look for a credit card with beneficial freebies. Some credit cards give you cash back every time you purchase items on the cards. Others give you attractive discounts on office supplies or other perks such as Air Miles or other travel benefits that can help with business travel costs.
When taking out any type of financial product, always take care to check the small print carefully. When taking out a line of credit, take care to ensure that there aren’t any penalties for early repayment of the debt.